G.R. No. 175733 and G.R. No. 180162, July 8, 2015.
WESTMONT BANK (now UNITED OVERSEAS BANK PHILS.), Petitioner, vs. FUNAI PHILIPPINES CORPORATION, SPOUSES ANTONIO and SYLVIA YUTINGCO, PANAMAX CORPORATION, PEPITO ONG NGO, RICHARD N. YU, AIMEE R. ALBA, ANNABELLE BAESA, NENITA RESANE, and MARIA ORTIZ, Respondents. / CARMELO V. CACHERO, Petitioner, Vs. UNITED OVERSEAS BANK PHILS. and/or WESTMONT BANK, Respondents.

FACTS

In April and May 1997, respondents Funai Philippines Corporation and Spouses Antonio and Sylvia Yutingco (original defendants) obtained loans from Westmont Bank aggregating P10,000,000.00, secured by promissory notes stipulating a 20% attorney’s fee clause. Upon default, Westmont filed a complaint for sum of money with a prayer for a writ of preliminary attachment. The RTC issued the writ, and Sheriffs Gerry C. Duncan and Carmelo V. Cachero levied properties, including those at Sta. Lucia, Rizal. Pepito Ong Ngo, as Acting President of Panamax Corporation, filed a third-party claim over the Sta. Lucia properties. Westmont then filed amended complaints impleading Panamax, Ngo, and others (additional defendants) as alter egos or dummies of the original defendants. The RTC, in its June 20, 2001 Decision, held the original defendants jointly and severally liable for the loan but dismissed the complaints against the additional defendants for failure to state a cause of action, ordering the return of wrongfully seized items. Westmont’s partial motion for reconsideration was denied. The additional defendants moved for and were granted execution pending appeal for the return of the seized items. Westmont filed a petition for certiorari with the CA, which issued a Temporary Restraining Order (TRO) on July 26, 2001. Despite being informed and later served with the TRO, Sheriff Cachero proceeded with the implementation of the break-open order and allowed seized items to be removed. The CA, in consolidated proceedings, (a) in CA-G.R. CV No. 71933, affirmed the RTC’s dismissal against additional defendants but reduced attorney’s fees to 5% of the principal; and (b) in CA-G.R. SP. Nos. 65785 and 66410, nullified the execution orders and found Sheriff Cachero guilty of indirect contempt, fining him P30,000.00. Westmont and Sheriff Cachero filed separate petitions for review.

ISSUE

1. In G.R. No. 175733 (Westmont’s petition): Whether the CA erred in (a) not applying the alter ego doctrine against the additional defendants; (b) not considering the additional defendants as necessary parties; (c) not awarding exemplary damages; and (d) reducing the stipulated attorney’s fees from 20% to 5%.
2. In G.R. No. 180162 (Sheriff Cachero’s petition): Whether the CA erred in finding him guilty of indirect contempt.

RULING

The Supreme Court denied both petitions and affirmed the CA Decisions with modifications.
1. On G.R. No. 175733 :
a. The alter ego doctrine was not applicable. The complaints against the additional defendants failed to state a cause of action as they contained mere conclusions of law and fact without alleging specific ultimate facts showing how the additional defendants were used to defraud creditors, as required by Section 5, Rule 8 of the Rules of Court.
b. The additional defendants were not indispensable parties. Their presence was not necessary for the court to adjudicate the rights of Westmont against the original defendants, who were the direct parties to the promissory notes.
c. Exemplary damages were not warranted. The original defendants’ breach of contract was not attended by fraud, malice, or wantonness. Exemplary damages cannot be awarded in the absence of moral, temperate, liquidated, or compensatory damages.
d. The reduction of attorney’s fees from 20% to 5% was proper. The stipulated 20% was excessive and unconscionable, especially considering the principal obligation had ballooned due to accrued interest. The court has the power to reduce stipulations for attorney’s fees that are unreasonable.
The Court modified the interest award, imposing legal interest at 12% per annum from January 16, 1998 (filing of complaint) until June 30, 2013, and 6% per annum from July 1, 2013 until full satisfaction.
2. On G.R. No. 180162:
The CA correctly found Sheriff Cachero guilty of indirect contempt. He had prior knowledge of the TRO via a phone call and a facsimile copy shown to him, yet he willfully disobeyed it by proceeding with the break-open and removal of properties. His acts constituted disobedience to a lawful order of the court under Section 3(b), Rule 71 of the Rules of Court. The fine of P30,000.00 was appropriate.